April 2 (Bloomberg) -- Shares of Telecom Italia SpA and its biggest shareholder, Pirelli & C. SpA, surged after AT&T Inc. and Carlos Slim's America Movil SAB each offered to buy a third of the entity that controls Italy's largest phone company.

Telecom Italia stock rose 20 cents, or 9.6 percent, to close at 2.34 euros in Milan, the biggest one-day gain since September 2001. Pirelli shares jumped 9.4 percent to 90.49 euro cents, the highest close in almost two years. AT&T and America Movil would buy stock and assume debt in Olimpia SpA, the holding company that owns 18 percent of Telecom Italia.

Buying the Olimpia stakes would give AT&T and America Movil a foothold in Italy, where Telecom Italia controls 72 percent of the fixed-line market and 40 percent of wireless subscriptions. The two would also extend their reach in Latin America where Telecom Italia owns Brazil's second-biggest mobile-phone company, which America Movil considered bidding for last year.

Shares of TIM Participacoes SA, Brazil's second-biggest mobile telephone company, jumped 41 centavos, or 6.1 percent, to close at 7.1 reais in Sao Paulo. Shares in Brasil Telecom Participacoes SA, in which TIM owns a stake, rose 26 centavos, or 1.4 percent, to 18.76 reais.

``There may be synergies with America Movil in Brazil, a country that represents about 7 percent of Telecom Italia's asset portfolio,'' said Oriana Cardani, an analyst at Rasbank SpA in Milan, who has a ``neutral'' rating on Telecom Italia shares and a ``buy'' on Pirelli's stock.

Government Opposition

The offer values the underlying shares in Telecom Italia at 2.82 euros ($3.77) each less debt, 32 percent more the closing price on March 30. The two bidders will each pay more than 1.3 billion euros for one-third of Olimpia, which is 80 percent owned by Pirelli and 20 percent by Sintonia, a Benetton family holding company. Olimpia has about 2.7 billion euros in debt.

``It's a great price at 2.82 euros before the Telecom Italia dividend, which will be paid this month,'' Cardani said. Including a 14 euro-cent dividend to be paid on April 26, ``the real value of the Telecom Italia stake is 2.92 euros a share.''

The AT&T and America Movil offer, which is valid until April 30, has already run into opposition from Italy's government, which doesn't want the country's biggest phone company to fall under the control of foreign investors. Mexico's Slim is the world's third-richest man.

Mediobanca SpA, Italy's biggest investment bank, and Assicurazioni Generali SpA, the largest insurer, can block the AT&T and America Movil bid under an agreement with Pirelli.

Pirelli said AT&T and America Movil will each get 16 million euros if Mediobanca and Generali buy the Olimpia stakes. A Generali spokesman said no decisions will be made until a binding offer is presented. Mediobanca didn't immediately return calls.

Emergency Meeting

The government may hold an emergency meeting to consider ``legislative and legal options'' to stop the sale, Public Works Minister Antonio di Pietro said in an interview today. Communications Minister Paolo Gentiloni said he was ``extremely concerned,'' according to an e-mailed statement.

In December, Autostrade SpA and Abertis Infraestructuras SA of Spain dropped their plans to merge and create the world's biggest highway operator after running into government opposition led by Di Pietro. The government may have had more room to get involved in that case because Autostrade operates its roads under a government-granted concession. The European Commission criticized Italy for interfering in the planned takeover.

`Global Company'

``This says something about AT&T's aspirations and their situation in America,'' said Philippe Kiewiet de Jonge, who manages a $150 million telecommunications fund at ABN Amro Asset Management and holds Telecom Italia stock. ``Obviously they're ready for the next step. They've consolidated everything in their home market and now they're looking outside again.''

AT&T, the largest U.S. phone company, would use an indirect investment in Telecom Italia to expand internationally and jointly develop products, AT&T spokesman Michael Coe said in an interview yesterday. ``We're a global company now, and it's very important for our global customers that we have strong assets and strong relationships around the world.''

America Movil, Latin America's largest mobile-phone company, said the purchase is a way for the three to increase cooperation. Slim also controls Telefonos de Mexico SAB, Latin America's biggest fixed-line phone company.

America Movil and AT&T also ``have expressed their availability'' to grant Pirelli and the Benetton family's holding company an option to sell their 1.58 percent direct stake in Telecom Italia and the remaining one-third of Olimpia, Pirelli said. The option may be exercised a year after the acquisition of the Olimpia shares at the same price.

Tronchetti Provera's Quest

Pirelli, led by Chairman Marco Tronchetti Provera, began seeking new partners for Olimpia last year, after other shareholders exercised options forcing Pirelli to buy their stakes. Pirelli had previously said it wouldn't give up majority ownership of Olimpia and pledged to maintain it ``strongly in Italian hands.''

The stake in Telecom Italia caused Pirelli to post a loss last year after a 2.1 billion-euro writedown related to the investment. In November, Pirelli cut the book value of its holding in Olimpia to 3 euros a share from about 4 euros.

``Telecom Italia needs something like this,'' said Amsterdam-based Kiewiet de Jonge at ABN Amro. ``It's obvious the shareholder structure needs to change.''

Buying Telecom Italia's Brazilian wireless unit, TIM Brasil, would give America Movil's Brazil unit, Claro, the scale it needs to compete more effectively against Telefonica SA's Vivo Participacoes SA.

America Movil spokeswoman Patricia Ramirez said yesterday that the agreement ``has no implications for the sale of assets'' when asked whether the transaction would help the company take over Telecom Italia's Brazilian operations.

Ramirez said the AT&T offer and the America Movil offer are independent and they will make independent decisions as Olimpia shareholders. AT&T said in a statement its purchase of a third of Olimpia was contingent on America Movil's investment.

To contact the reporters on this story: Chiara Remondini in Milan at cremondini@bloomberg.net; Molly Peterson in Washington at mpeterson9@bloomberg.net.

Last Updated: April 2, 2007 17:38 EDT